Economy Watch: Retail Ekes Out Continued Slow Growth

The U.S. retail sector remains commercial real estate's the most sluggish property type, an unwanted distinction it's had since the recession.

The U.S. retail sector remains commercial real estate’s the most sluggish property type, an unwanted distinction it’s had since the recession. That’s partly because robust building during the 2000s, which left a hangover of space, and partly because the U.S. recovery hasn’t meant robust wage gains. Thus the slow improvement for the property sector continued in early 2016, according to Reis Inc.’s 1Q 2016 report on the sector.

Neighborhood and community center vacancy was unchanged during the first quarter at 10 percent even, said Reis. Retail mall vacancy was also unchanged for the quarter, but at a lower level: 7.8 percent. For both subsectors, supply and demand were roughly equivalent during the first quarter.

Asking and effective rents for neighborhood and community shopping centers did manage some growth, up by 0.5 percent and 0.6 percent respectively during the quarter. The growth rates for both species of rents have been more-or-less constant since Q4 2014. Over the last 12 months (as of the end of March), asking and effective rents grew by 2.1 percent and 2.2 percent respectively, close to the year-over-year growth rates of the previous quarter.

New completions for neighborhood and community centers remain mired at low levels, Reis added, with just 1.565 million square feet coming online during the first quarter, the lowest quarterly figure since Q1 2014. Net absorption of 2.532 million square feet was slightly ahead of the figure from the fourth quarter, though demand for neighborhood and community center space remains limited.